Fitch Affirms Namibia at 'BBB-'; Outlook Stable

Fri May 30, 2014 12:05pm EDT

(The following statement was released by the rating agency) LONDON, May 30 (Fitch) Fitch Ratings has affirmed Namibia's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'BBB-' and 'BBB', respectively. The Outlooks are Stable. The issue ratings on Namibia's senior unsecured foreign and local currency bonds have also been affirmed at 'BBB-' and 'BBB', respectively. The Country Ceiling has been affirmed at 'A-' and the Short-term foreign currency IDR at 'F3'. Fitch has also affirmed the National rating on the South African scale at 'AA-(zaf)'. KEY RATING DRIVERS Namibia's 'BBB-' ratings primarily reflects steady growth, supported by a stable political and economic environment. The sovereign's balance sheet is strong. Government debt (25% of GDP in 2013) is well below the BBB peers' median (40%). Recent high budget and current account deficits have highlighted the dependence of the economy on South African Customs Union receipts (SACU) and the exposure to a few volatile commodities. Continued investment should support the diversification of the economy. Namibia's 'BBB-' IDRs also reflect the following key rating drivers:- Fitch expects GDP growth will be 4.8% in 2014 and 5.0% in 2015 from 4.4% in 2013, supported by continuing fiscal expansion, on-going public and private investments (including the Husab uranium mine) and recovery in the mining sector given a stronger external environment. The main risks to the forecasts are lower than expected demand for Namibia's key mineral exports (uranium and diamond). In the longer term, the economy should benefit from reforms to develop infrastructure and new sectors, consistent with the new Industrialisation Policy for Namibia approved in 2013. In fiscal year 2013/14 (FY14, from April 2013 to March 2014) the deficit increased to negative 2.0% of GDP (from 0% of GDP in FY13) reflecting an increase in current expenditures and high capital spending in line with the strategy to support the domestic economy. Fitch forecasts the budget deficit will increase to 3.5% of GDP by FY16, primarily as a result of SACU volatility. Grants will gradually decline (including the Millennium Challenge Account compact) reflecting Namibia's status as an upper middle income economy. The increase in public debt was limited in FY14, at 24.6% of GDP from 24.4% in FY13, as part of the deficit was financed using government deposits (5.8% of GDP at end-2013 from 7.4% at end-2012). The depreciation of the currency (by 23% against the US dollar in 2013) negatively affected external debt (30% of total government debt excluding ZAR-denominated debt). Public debt is forecast to continue increasing, reaching 27% of GDP in FY16, although it will remain below the 35% government debt ceiling. After a few years of accommodative public policies and high investment, the level of foreign reserves was USD1.5bn at end-2013 (2.3 months of current account payments, CXP), well below the 2009 peak (USD2bn, 4.5 months of CXP). Fitch expects FX will remain at 2.3 months of CXP by 2015 in a context of continuing twin deficits. Fiscal tightening would support a rebuilding of FX in the medium term. A high level of FX reserves is critical for maintaining confidence in the peg with the ZAR. Fitch expects the next presidential and parliamentary elections, due in November 2014, to be smooth, reflecting the country's political stability. The candidate from SWAPO (South West Africa People's Organization) is widely expected to win the contest by a large margin, reflecting the support enjoyed by the ruling party since independence in 1990. Namibia's GDP per capita and scores on UN Human Development indicators are weaker than its 'BBB' peers median. High unemployment, at 27% of the labour force, reflects the limited development of the private sector and the capital-intensive nature of the mining sector (11% of GDP but only 2% of employment). RATING SENSITIVITIES The Stable Outlook reflects Fitch's assessment that upside and downside risks to the rating are currently well balanced. The main factors that individually or collectively might lead to rating actions are as follows: Positive: - Continued strong GDP growth in the context of macroeconomic stability and fiscal consolidation. - Strengthening of fiscal and external balance sheets. - Improvement in the business environment and successful development of new economic sectors (e.g. tourism, agro-processing) that would lessen exposure to volatile mining and agriculture and lower dependence on SACU. Negative: - Sustained large budget deficits and no medium-term commitment to fiscal consolidation that would weaken debt ratios, government deposits and foreign reserves at the central bank. - Materially weaker growth prospects or significant pressure on international reserves that undermine the country's external liquidity position. KEY ASSUMPTIONS Fitch anticipates continuing commitments to develop non-SACU revenues, improve the business environment and invest public resources in productive infrastructure. Fitch assumes a gradual recovery in the global economy that will support demand for Namibia's key exports. Fitch assumes there will be no major revision to the SACU revenue-sharing formula that could negatively affect SACU revenues to Namibia. Contact: Primary Analyst Arnaud Louis Director +44 20 3530 1539 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Alex Muscatelli Director +44 20 3530 1695 Committee Chairperson Shelly Shetty Senior Director +1 212 908 0324 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on Applicable criteria, 'Sovereign Rating Criteria' dated 13 August 2012 and 'Country Ceilings' dated 09 August 2013, are available at Applicable Criteria and Related Research: Sovereign Rating Criteria here Country Ceilings here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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